hopes rise

From today's Australian:

KAROON Gas shares bounced today on renewed expectations that its Browse Basin joint venture with ConocoPhillips has struck gas at its Poseidon-2 appraisal well.

An energy analyst helped drive the rally by supporting comments made late on Thursday by a person familiar with the drilling campaign that early indications suggest that the discovery is significant. A large gas pay at Poseidon-2 would build on the watershed discovery at Poseidon-1 about six kilometers away, and provide further evidence that the partners could be sitting on a resource big enough to support a multibillion dollar liquefied natural gas plant.

Karoon company secretary Scott Hosking declined to comment on the size of the find. The company, however, did indicate earlier this month that it had taken 60m of core samples from the well. EL&C Baillieu analyst Ivor Ries said that the partners taking samples indicates "a decision to production test would seem to be a near certainty". "Had the drillers concluded that there was a low chance of achieving good flow rates at the Poseidon-2 well, core samples would not have been cut and the well would have been abandoned," Mr Ries said.
"The Browse joint venture has now satisfied itself that the Poseidon-2 well contains the Plover Formation A, B, and C sands in roughly the same thickness that presented at the Poseidon-1 discovery well."

Karoon shares were up 7.4 per cent in midday trade at $8.25 after a person familiar with the situation said late Thursday that the partners are confident that the well will be a success, but won't provide details until further analysis is complete. Karoon shares fell 8.6 per cent on Thursday after the well surpassed its planned depth but the company did not provide details of what it encountered.
"What they're seeing is the same sort of structure as what they saw with Poseidon-1," the person said.

Initial results from the Poseidon-1 exploration well released earlier this year indicated that it had struck a 200m gas column, sending Karoon's shares flying. Technical issues, however, forced the well to be plugged before more extensive testing data could be obtained.

Merrill Lynch energy analyst Mark Hume said in a note to clients that Thursday's fall in Karoon shares was an over-reaction. "We see little evidence to doubt the presence of gas at Poseidon-2, although we concede that a production test is still critical to determining the quality of this potentially world-class gas discovery," Mr Hume said. He has a Buy rating on the stock with $10.88 price target.
Early-stage independent analysis has estimated that Karoon and ConocoPhillips could be sitting on 7.6 trillion cubic feet of gas in their Browse Basin permits. Around 4.0 tcf is required to support an onshore LNG facility.

Poseidon-2 is the third well in their exploration campaign. The second well, Kontiki-1, didn't find much and was written off as a duster.

Two more exploration wells, Lion-1 and Kronos-1, will follow Poseidon-2 and the venture has an option to drill a further four wells.
ConocoPhillips owns 60 per cent of the venture's Browse Basin permits and Karoon 40 per cent.